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Lululemon shares up on report on founder

Associated Press |
Wednesday, 02 July 2014 16:47 (EST)

NEW YORK (AP) — Shares of athletic gear maker Lululemon Athletica Inc. rose on Monday after a report that its founder Dennis "Chip" Wilson is in talks with Goldman Sachs about selling his stake in the company or possibly proposing a buyout bid.

The Wall Street Journal reported that Wilson, who holds about a 27 percent stake in the company, is mulling potential options related to the Canadian company that he founded in 1998. In addition to selling his stake or making a bid for the company, Wilson could also decide to launch a proxy fight to win additional board seats, according to the article.

Lululemon did not comment directly about The Journal article but said in a statement that its board of directors and management team are "focused on further strengthening the company's product engine and relentlessly innovating to drive global expansion and create value for Lululemon shareholders."

Lululemon has been working on improving its business since last spring when it pulled one of its popular yoga pants from stores because they were too sheer, which it blamed on a style change and production issues. Fixing the problem cost the company millions and made investors question quality control. In its most recent first quarter ended May 4, net income fell 60 percent, stung by a one-time tax adjustment. But revenue rose 11 percent to $384.6 million, beating expectations.

Wilson expressed displeasure about the board earlier this month. He issued a press release stating that he voted against the re-election of the chairman and one other board member.

Wilson said he was asked by Lululemon Athletica Inc.'s board last year to come back from Australia — where he had been living — to help the company deal with the product recall. He said changes are needed to help increase shareholder value.

Stifel Nicolaus analyst Jim Duffy said he expects The Wall Street Journal article to be the first of many about board member in-fighting and buyout discussions initiated by Wilson. He added that it is possible that Wilson could get a buyer if he decided to sell his stake, but a buyout is unlikely at the current share price.

"Issues in the boardroom will continue to be a distraction for Lululemon, and could prolong turnaround efforts further into 2015 should conflict among the board continue late into the second half of 2014," Duffy wrote in a client note.

Shares of Lululemon rose $1.02, or 2.5 percent, to close at $41.25. The stock had been down 32 percent since the beginning of the year.

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